Where benefits withdraw as earnings rise, the effective marginal tax on additional work can approach or exceed 100%.
Effective marginal rates above 80% are documented in several benefit systems, and above 100% in some combinations. The trap is arithmetic rather than motivational.
In practice
- A claimant who takes ten extra hours' work loses housing benefit, tax credits and free school meals, and is worse off.
- A household earning £1 above a threshold loses a benefit worth £900, which is a marginal rate no tax system would defend if stated openly.